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SPECIAL REPORT: CA CHARTER 1 – 3

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CA CHARTER: ACCOUNTANCY PROFFESSION UNVEILS EMPOWERMENT CHARTER

CA Charter insists chartered accountants have a duty to support broad based empowerment

The Chartered Accountancy [CA(SA)] profession’s Broad-Based Black Economic Empowerment (B-BBEE) Charter was signed in Johannesburg towards the end of 2007.

The CA Charter, some four years in the making, promises to play a pivotal role in helping to solve the critical skills shortage currently plaguing South Africa’s accountancy profession.

“To create an environment in which economic growth may continue while facilitating effective transformation, the skills profile of our population must move towards reflecting the country’s demographics while still meeting growth needs and maintaining standards,” said Ignatius Sehoole, Chairman of the BEE Negotiation Charter Forum of the CA(SA) profession.

The Charter’s primary focus is therefore on skills development aimed at increasing the number of black (especially black women) Chartered Accountants in South Africa.

“Since 1976, only 912 Africans have completed the requirements to register as a CA(SA); a number that compares unfavourably with the total of 26 803 CAs(SA).

“Transformation would therefore take too long if left purely to economic forces,” Sehoole said. “Active, large-scale intervention is required to redress the situation.”

He maintained that CAs(SA) had a duty to support B-BBEE. “The benefits that will flow from a successful BEE programme are immeasurable and will accrue to everyone.”

Hence the CA Charter, which had been drafted such that it could be tailored to the profession’s unique needs while simultaneously laying down BEE weightings that resembled the national BEE ratings and the Department of Trade and Industry’s (dti) Codes of Good Practice.

Sehoole, who is also the Executive President of the South African Institute of Chartered Accountants (SAICA), highlighted the BEE Charter Negotiation Forum’s broad representativeness.

Meaningful input from all such parties over the past three years was to result in the dti gazetting the Charter – one of three such Charters to be accorded so high a profile.

He said the Charter should be viewed against the background of the many positive transformation dynamics that were already in progress. Thus:

  • The intake at South African universities showed that whites were no longer the majority of prospective CAs(SA). “Indeed, the rate of prospective African CAs(SA) is climbing steeply.”
  • Thuthuka, SAICA’s imaginative transformation initiative, had played, and continues to play, a vital role in accelerating the number of African CAs(SA).
  • More females than males were passing the qualifying examination.
  • The pipeline was looking increasingly transformed, with each race group moving identifiably toward reflecting the nation’s demographics.

Sehoole was confident that the CA Charter would accelerate these “encouraging” trends. “The scorecard is talking to our profession. We are on an exciting journey toward effective transformation.”

The Charter’s primary focus is specific to areas not covered by other industry charters, since the CA(SA) profession comprises numerous member constituencies employed throughout the economy, either as owners or employees.

The Negotiating Forum and its successor, the 12-member Charter Council, will apply the Charter from 2007 to the end of 2016. It will base its operations on nine key guiding principles.

The independent part-time Council will receive secretarial and administrative support from SAICA to keep running costs, borne by SAICA, at a minimum.

To qualify as a Qualifying Small Enterprises in terms of the Charter, an enterprise’s annual revenue must be between R5 million and R35 million. If the number exceeds R35 million, the sector Scorecard applies.

A micro enterprise, one with an annual turnover of less than R5 million, is deemed to have a level four B-BBEE status with a B-BBEE procurement recognition of 100%.

Seven key elements form the pillars to broad-based BEE:

  • Ownership
  • Management control
  • Employment equity
  • Skills development
  • Preferential procurement
  • Enterprise development
  • Socio-economic development

The CA Charter will apply the same weightings, “with a minimum of deviation”, to these elements as are contained in the state’s Code of Good Practice.

The Forum, having identified challenges and future outcomes, has highlighted several specific activities designed to “effect the transition from the current situation to the desired future situation”.

These should be viewed against the background of the Charter’s primary aim of establishing a structure that reflects South Africa’s demographics, and a secondary aim of enabling compliance with the BEE Codes of Good Practice targets.

The CA Charter sets out which activities should be undertaken by SAICA and which by the CA sector. “These consolidated efforts should result in achieving the Charter’s stated objectives.”

CA CHARTER: SIGNATORY COMMENTS

 

Cheryl James, Fasset CEO

Fasset, which has been committed to the Charter process from the outset, congratulates all participants for finalising the Charter, which will facilitate change and transformation in the profession going forward.

With specific reference to skills development, it is encouraging to see that the whole profession is committed to ensuring that young South Africans are given the opportunity and support to enter a profession that is in dire need of attracting young people to our sector.

We hope that by starting at grass roots level the impact of increasing the pool of well qualified CAs(SA) will address the management control and ownership aspects over time and that within the life span of the Charter, all targets will be achieved.

The dedication and commitment of all the stakeholders in the Charter process bodes well for the future and I believe with this ongoing support the Charter will help to ensure that the CA profession is representative of the demographics of our country by the end of the 10 year period.

Liza Wood, Small Practices representative

We see our role in training future black chartered accountants as fundamental for the growth of the profession and the economy. It is, however, unfortunate that, despite this training contribution, smaller firms find it very difficult to retain their qualified black staff. This is mainly due to the skills shortage and as a result the inability to compete with the attractive offers from commerce.

Nevertheless, skills development is an area on which we pride ourselves and should be able to get credit in this element.

Many smaller firms are already doing good work in the enterprise development area, as we are often approached to help black entrepreneurs. The credit we get for this will be deserved recognition for our contribution to the development of small business in our country.

Ewald Muller, Commerce and Industry representative

Chartered accountants in commerce and industry (C&I) were represented on the BEE Charter Negotiating Forum throughout the process and fully endorse the principles contained in the final charter document.

While C&I will apply the Charter in allocating work to audit firms, chartered accountants in C&I will primarily play a role in supporting the objectives of the Charter in the area of skills development. This will be achieved by developing, enhancing and expanding the TOPP programme.

We recognise that there is an acute shortage of accountants broadly and even more specifically in the arena of chartered accountants. It is imperative that we support the profession’s development of its pipeline to address the needs of businesses in a growing South African economy.

The TOPP programme needs to be expanded by encouraging suitable companies to become accredited training institutions and also potentially by growing the complement of trainees at existing institutions.

Further endeavours must include more active marketing of training outside public practice as a suitable alternative for attaining the
CA(SA) designation and developing support networks for TOPP trainees along similar lines to those available to trainees inside public practice.

C&I recognises that its support is required in addressing the issues of maths and science literacy at school level. We believe it is imperative that we cooperate in this sphere, as it is in the best interests of
South Africa.

Importantly, the BEE Charter for the chartered accountancy profession is not directly applicable to CAs(SA) in C&I and that their companies will not need to apply this charter, though their assistance is required, wherever possible, in supporting the objectives.

It would also be appropriate for chartered accountants running their own businesses outside of the auditing profession to subscribe to the Charter where there is not another governing their specific area of business.

Tsakani Matshazi, Vice Chairman of the Charter Forum and ABASA vice president

Ownership and management control targets have been aligned to the Scorecard included in the dti Codes of Good Practice. Even though some of the large firms have already achieved the targets for ownership and management control, we expect that the Charter Council will monitor progress made by the small and medium firms.

The weighting and targets on skills development reflect the sector’s focus on increasing the number of black chartered accountants – critical if we are to achieve the sustainable transformation of the profession as well as of corporate South Africa.

The focus in this area also correctly involves the profession’s key stakeholders in the task of addressing the severe shortage of black CAs(SA).

In the sphere of enterprise development, it is envisaged that the sector will invest in the development of black-owned accounting and auditing firms over the next ten years. I expect the Charter Council to proactively monitor whether this goal is being achieved.

Stanley Subramoney, Private Practice representative and Deputy CEO of PwC

South Africa has achieved solid economic growth over the past decade and as a profession we wanted to ensure that qualified CAs(SA) stay in the profession and become partners.

One of the ownership challenges is that while the firms may be structured through sole proprietorships, the eligibility of partnerships or incorporated entities is strictly prescribed by legislation. The CA Charter thus embraces the spirit of what government intends to achieve with B-BBEE rather than being numbers driven.

It is vital for an economy such as ours to have proper financial and management skills; skills that CAs(SA) are able to provide across all sectors of our economy. CAs(SA), and particularly black CAs(SA), have been identified as being in short supply. Research reveals that the sector is experiencing an enormous shortage when it comes to recruiting trainees and that there is a decline in the number of candidates presenting themselves for the Qualifying Examination.

In order to encourage firms to be innovative, we allocated a further five points to Skills Development. The sector lends itself ideally to that of a training ground for future CAs(SA).

CA CHARTER: FOOTNOTES

 

  1. The following stakeholders comprise the BEE Negotiation Charter Forum:
  • SAICA;
  • The Association of Black Accountants of SA (ABASA);
  • The Auditor-General;
  • The Financial Services Board (FSB);
  • The Big Four financial services firms;
  • Medium-sized firms;
  • The Black Firms Forum;
  • Small practices;
  • Commerce and Industry;
  • Academics;
  • Fasset, the financial sector’s SETA;
  • National Treasury;
  • Trainees;
  • The Independent Regulatory Board for Auditors (IRBA);
  • African Women CAs (AWCA); and
  1. The Charter Council’s prime responsibilities will be to:
  • Receive and consider annual scorecards and reports;
  • Consolidate ratings;
  • Issue guidance notes on the Charter’s interpretation and application;
  • Prepare an annual review outlining progress and evaluate new areas of intervention;
  • Submit the annual review to the BEE Advisory Council (BEEAC);
  • Engage with government, the BEEAC and regulatory agencies to promote the Charter’s implementation; and
  • Report annually to the Minister and the BEEAC.
  1. Weighting table
  2. Challenges identified by the Negotiating Forum include:
Code

 

CA sector

 

Ownership

Management Control

Employment Equity

Skills Development

Preferential Procurement

Enterprise Development

Socio-Economic Development

20%

10%

15%

15%

20%

15%

5%

20%

10%

20%

20%

10%

15%

5%

Total

 

100%

 

100%

 

 

  • Black professionals leaving public practice;
  • Black partners playing a disproportionate role in business development;
  • Lack of career awareness and inadequate subject choices;
  • Lack of students taking higher grade mathematics and, in future, core mathematics;
  • Inconsistent standard of education;
  • Poor throughput pass percentages at university and in the Qualifying Examinations (QE);
  • Perceived lack of transparency at QE level;
  • Black trainee perceptions;
  • White trainee perceptions;
  • Working conditions and opportunities; and
  • Skills development, indirect empowerment, enterprise development and socio economic development.
  1. The CA sector (the professional services firms) will primarily be responsible for the direct empowerment elements of ownership and management control and for preferential procurement.
  2. Human resource challenges are to be shared, with the CA sector striving to build career awareness at schools and universities. It should provide bursaries and effective training of black candidates.
  3. SAICA’s responsibility will be to organise and co-ordinate efforts to ensure that candidates flow through the profession. It should expand its school and university programmes to enable firms to meet targets.
  4. SAICA, along with firms operating in public practice, will be expected to submit scorecards and abide by the terms of the Charter if they wish to be BEE compliant.
  5. The CA Charter calls upon those involved in the academic environment to help ensure that a sufficient number of prospective black CAs(SA) qualify, thereby assisting firms and the profession to meet their targets.
  6. The Charter deems non-members of organised accountancy membership bodies – those who perform similar functions or offer similar services – as part of the accountancy profession.